ch 16 in class

Answer 1

balance sheet - financial position

income statement - performance

Question 2

vertical vs horizontal analysis

Answer 2

vertical - within a year

horizontal - span of two or more years

Answer 3

horizontal analysis is not a financial statement

Question 4

liquidity ratios

Answer 4

short term assessment of company’s ability to meet its obligations

assess’s company’s riskiness in terms of debt obligations

Answer 5

working capital is good for analyzing one company but bad for comparing due to size

Question 6

acid test

Answer 6

excludes inventory

Question 7

debt management ratios

Answer 7

assess company’s long-term obligations and riskiness

Question 8

times interest earned ratio

Answer 8

higher the better, income available to pay interest expense

Question 9

debt-to-equity ratio

Question 10

equity multiplier

Answer 10

proportion of equity thats financing assets

Question 11

accounts receivable turnover

Answer 11

converting credit sales to cash faster; higher is better; how quickly cash is collected

avg collection period = how many days it takes to convert credit sales to cash

Question 12

inventory turnover

Answer 12

how many times a year a company’s inventory has been sold and replaced during the year;measure inventory efficiency

Question 13

inventory turnover doesn’t acocunt for profitibility

Question 14

operating cycle

Answer 14

selling inventory and getting the cash back

Question 15

total asset turnover

Answer 15

sales/avg total assets

measures how efficiently a company’s assets are being used to generate sales

Question 16

profitability ratios

Answer 16

companies ability to generate returns to its investors

Question 17

gross margin percentage

Question 18

return on assets

Answer 18

how much income generating per unit of asset

Question 19

return on equity

Answer 19

how much is going to investors